The outlook for shares and property may be equally uncertain at the present time, but the former may prove to be a better long-term investment.
The FTSE 250, for example, appears to offer better value for money than a buy-to-let investment. It also has a solid track record of growth, which suggests that its recent lacklustre performance is unlikely to be permanent.
When combined with the simplicity of buying shares versus buying property, now could be the right time to purchase mid-cap shares, rather than a buy-to-let property.
Track record
The recent performance of the FTSE 250 has been disappointing. Over the last two years, for example, it has failed to deliver any capital gains. This has largely been due to the uncertainty facing the UK economy, with business and consumer confidence negatively impacting what is a more UK-focused index than the FTSE 100.
However, the track record of the FTSE 250 over a longer period shows that a higher return is achievable in future. For example, over the last decade it has recorded annualised capital growth of over 8%. When its dividend is added to this figure, it has posted a total return that is in double-digits. This suggests that, while further uncertainty may hold back its performance in the short term, its long-term prospects are bright.
Current valuation
One factor that could catalyse the mid-cap index’s performance is its valuation. It currently has a dividend yield of over 3%, which is above its long-term average. This could mean that a wide range of its members trade on low valuations compared to their historic levels. As such, there may be an opportunity for investors to buy high-quality businesses while they trade on low prices.
This is in contrast to the property market. While low interest rates may mean that property prices are affordable compared to incomes at the present time, an increasingly restrictive monetary policy could lead to a squeeze on house prices over the medium term. This may limit the capital growth potential of a buy-to-let investment, thereby making it a relatively unappealing asset to hold over the coming years.
Simplicity
As well as higher return potential, the FTSE 250 offers greater simplicity for investors than a buy-to-let investment. The latter requires a larger initial investment, as well as additional costs involved in the buying process and in finding tenants. There are risks such as repairs, void periods and the prospect of further tax changes.
By contrast, FTSE 250 shares can be bought and sold in just a few clicks. This can leave an investor with more time to not only find the best investments at a specific moment in time, but to also focus on increasing the amount of capital they have available to invest today in order to improve their chances of retiring early.
